Reference no: EM132585491

You take a glance at your watch and almost rejoice at what you saw. It is just ten minutes away from noon and your growling stomach reminded you that it was close to lunch time. Just then, the boss true to his promise to return at noon, did just that. "What? Thinking of going for lunch already? It's still way too early; and look you just had a coffee break at 9:00. Why don't you dig in there instead and finish this second issue in the file. It is a short case and shouldn't take you more than an hour or so.

Point 1: On January 1, 2018, the company had issued $1,200,000 par value, 7%, five-year bonds at a price of $1,251,176. Interest was payable semiannually on June 30 and December 31. The market rate of interest was 6% on the date the bond were issued.

Point 2: On March 1, 2019, the company extinguished 40% of the bonds outstanding by issuing 15,000 of its common shares. It also paid in cash all interest due up to March 1, 2019 on these bonds. The market value of these shares was $36 per share. Assume the company is using IFRS to account for the bonds.

REQUIRED:

Question 1: Prepare the journal entry to record the interest expense on the bonds payable, on December 31, 2018.

Question 2: Prepare the journal entry to record the payment of interest accrued on the bonds which were retired on March 1, 2019.

Question 3: Prepare the journal entry to record the early retirement of the bonds on March 1, 2019.

Question 4: Preparing an amortization table for the bond issue for the appropriate period would be useful in solving this problem.